Getting into business with another person is like getting married. They start their businesses with their best friends or family member with the idea of “hitting it big”. They decide that because they trust each other, they’ll be 50/50 partners in everything. They set up a limited liability company or corporation and begin doing business.
Unfortunately, during this honeymoon period, they never think about a possible divorce. “Of course, it will never happen, he/she is my best friend,” are the reasons why they don’t plan for such eventuality. But, more likely than not, disagreements break out . . . and they can get so bad that it’s obvious they can’t continue to work together, or even worse, the disagreement spills into the family friendships as well. This leads into business separations or what I call, “business divorces”.
NorthStar Law Group, P.S. is representing a client with one right now involving three businesses co-owned with their (former) best friend. The disagreements started professionally, then turned personal, and eventually affect their childrens’ relationships with the other side’s children at school. A lot of emotions were involved, ranging from anger, frustration, vindictiveness to sadness (tears were shed). It got (and is still) ugly.
We’re finally at the end stage of splitting up the businesses with a lot of time and cost spent and neither side being happy with the result. But this could have been avoided with proper planning at the pre-establishment stage (“premarital”) or immediately after forming the company (“postmarital”). It’s much better to plan for a possible break-up when everyone is in the honeymoon phase, when emotions are calmer and the parties are more rational.
So, if you are thinking about getting into business with your friend or family member, please contact NorthStar Law Group, P.S. to discuss the formation of your business entity and the available methods to stave off or mitigate the effects of a possible business “divorce” should it arise.
